This topic on the myth of savings and retirement will step on a lot of people’s toes. It will challenge the “commonplace” assumptions of life, business, and retirement. This topic comes up about three times a week in calls and/or emails and is couched in a not so simple question about: “Can I afford ________?” or a client’s inability to tell me how long they want to work and how much they think they need to have at retirement. One would think that the answer to these questions depends on multiple factors as well as the doctor’s ability to clearly understand the facts of their individual situation. I have yet to find a dollar amount of income a doctor and his or her family could not spend, plus usually more in the form of debt. Knowing this, keep in mind that financial independence is not necessarily dependent on a high-income level. Any income level can enable a person to reach financial independence if they save and invest wisely by starting early and being consistent over their lifetime of active work. Your goal in life from a financial perspective is not becoming rich. That’s just money. It is becoming wealthy. That’s the money you need to live on plus about 25% more as a safe harbor, and most importantly, you having the time to enjoy it. Big difference in being rich and wealthy. The biggest barrier will be that almost every dentist I have ever spoken with felt like the cornerstone of their wealth building and ultimate retirement was accumulating a pile of money so big that they couldn’t possibly spend it all before they died. This is a huge myth that is guaranteed to come up short in light of the risk of investment returns, burn rate, monthly spending, shiny object obsession, debt, market corrections, and inflation adjustment over the long haul. Just having a pile of money is not the goal and certainly not a solution to or guarantee of financial independence. Investing that money in low risk (you will not lose your principle or risk market adjustments) ideal returns to create passive income is the smart move in money management. You could actually have fewer assets creating more in safe consistent passive income than your pile of money could duplicate. This situation would actually minimize the risk while giving you a safe return with a lower amount of savings. As an aside, I have never seen a person using a 401K save themselves into wealth. More on this later.
The solution to this challenge is affected by several variables. But before we discuss these, I want to make sure that we put to bed a very common limiting and false belief about money. This is based on several disturbing facts. Most dentists will never retire financially independent. In fact, less than 6% of all dentists will retire financially independent. The average dentist, by age 70, will be either dead or dead broke. Very few ever attain true financial independence. You need to ask yourself how, after having spent a lifetime in a career where even the average practice has millions of dollars of profits, can you not reach a point of financial independence? On paper, logically, we should all be able to arrive at a point of no debt and financial independence. I define this point of financial freedom as being the point of no debt and “passive income” that completely replaces your current income from working every day. So, why do 95% of all dentists fall short of this benchmark? Before we explore that, let’s first consider what passive income is.
Passive income is a cash stream that requires little or no daily effort to maintain, unlike active income such as cash earned from a full-time job. In our case, most dentists trade time working for money. Money invested wisely can create money while you sleep. The right investment strategy can allow you to enjoy that sleep. Warren Buffet is known to say, “If you don’t find a way to make money while you sleep, you will work until you die.”
The reason that dentists rarely finish well begins with a dental license and an attitude of entitlement. We worked hard to become a doctor and so deserve to have nice things. That brings up a second flaw in the character of most doctors: instant gratification. Not only do they feel they deserve the nicer things in life, they feel they have to have them right now. The third thing that fuels the myth of chasing the pile of money is that because of your license, you have banks willing to loan you the money to buy the things that you think you deserve. This takes us back to the discussion of chasing the myth that debt is normal. Once again, you will spend fifty percent of all the money you take home paying off high interest debt for objects that have no real investment value. The final nail in your financial coffin is the belief that because you are a “Doctor”, you can do anything well and that’s why you continue to laugh at investment risk and swing for the fence every time you are up to bat.
As a bonus, lets add a couple of ancillary causes of never becoming financially independent. I have never seen such a common practice of chasing shiny objects in the pursuit of conquering their short falls in their businesses as with the average dentist. Are we that naïve to believe that every commissioned slick willy salesman that we run into at the dental trade shows has the one new whatchamacallit, whiz bang service, instrument, or piece of equipment that we cannot practice without? Obviously so, based on the spending habits of the financially challenged average dentist. Instead of becoming a better leader or businessperson, we throw money at our problems. More staff, when the staff we have don’t create additional production, more equipment, when we don’t even use it for services that our patients want, and consultants or experts that in their vast experience have never owned a dental practice, business, or successfully done any of the things they are asking us to do. Common sense makes this strategy of dentist’s spending money they don’t have to make money they will never make, as silly an exercise as selling popsicles to Eskimos in the dead of winter. Some how we have lost the basic fortitude of staying the course of producing income with a service that people want, saving the money, investing it, and reinvesting it as we distance ourselves from lifestyle and consumer debt.
Each and every one of us needs to be setting back at least 20% of what we take home in secure investment savings. Secondly, we need to flee the ups and downs of the stock market and crypto currency for a more stable, less volatile investment that hedges against the economic pressures of a government that fails to understand the basics of free market when they bail out the mistakes of lending institutions and huge corporations only to delay the inevitable bill that will come due for our kids and grandkids. Consistency in our savings starting early in our careers and investing wisely is the key. When it comes to money, we need to take the time to internalize these five steps to financial independence.
- Income: Grow it
- Consumption: Control it
- Debt: Eliminate it
- Savings: Build it up
- Giving: Increase it
This is how you Summit.
Michael Abernathy, DDS
PS. I rarely make recommendations about who to go to for specific needs because I always worry that my recommendation might not turn out good for my readers. For those of you that are interested in consistent returns in a safe segment please take a look at Freedom Founders and David Phelps, DDS. You won’t be sorry. www.freedomfounders.com